McDonald's Deepens China Commitment with Carlyle Deal, Boosting Minority Stake

McDonald's is acquiring Carlyle's interest in its China operations, boosting its minority ownership from 20 percent to 48 percent.

For $2.1 billion, the fast-food juggernaut handed off ownership of its eateries in Macao, Hong Kong, and the Chinese mainland in 2017. It was a component of McDonald's larger plan to own fewer eateries and delegate management of individual sites to franchisees with local market expertise.

At that time, the state-owned investment company Citic acquired the bulk of the shares, with the massive private equity firm Carlyle purchasing 28 percent. McDonald's retained twenty percent of the company.

The specifics of the arrangement, which was announced on Monday, were not made public. If authorities accept the acquisition, it is anticipated to conclude in the first quarter of 2024. Citic still has a 52% share in the company.

With over 5,500 outlets, McDonald's has more than quadrupled its presence in China since 2017, making it the second largest market in terms of total locations. By 2028, the business hopes to have 10,000 locations.

But since the start of the Covid epidemic, McDonald's sales in China have been difficult. According to Factset estimates, the nation generates around 4 percent of the chain's overall income, a decrease of 3.8 percent from the previous year.

Although the burger business is attracting consumers by marketing its burgers, Kempczinski mentioned during McDonald's most recent earnings call that China is grappling with "slowing macroeconomic conditions and historically low consumer sentiment."

China has increased the number of McDonald's locations to 5,500 since 2017, making it the company's second-largest market. By 2028, the company hopes to have more than 10,000 locations throughout China.

Since September 2019, the company's sales have increased by over 30%, as stated in the announcement.

Expediting Agreement for China Business Expansion

According to the sources, a speedy agreement was reached after McDonald's made an unsolicited offer for Carlyle's share of the China business in recent weeks.

The Chinese private equity firm, Trustar Capital, intended to establish a continuation fund to enable it to sell a portion of its ownership in McDonald's China.

Unlike McDonald's, American meat and processed food manufacturer Tyson Foods intends to sell its chicken business in China, according to sources.

The Chinese infant formula and child nutrition businesses were sold by British consumer goods manufacturer Reckitt Benckiser to investment company Primavera Capital in 2021 for an enterprise value of $2.2 billion.

Pending regulatory clearances, the transaction is anticipated to be finalized by the first quarter of the following year. This action demonstrates McDonald's reliance on entrepreneurial franchisees managing its worldwide business. Both Carlyle and CITIC Capital bring a wealth of financial experience to the table, and the deal is announced as McDonald's continues to post impressive financial results.